Grabbing fraud by the collar

Giant hand picking up businessman by the collar Color

Corruption has become commonplace in South Africa, an unfortunate fact highlighted by recent PricewaterhouseCoopers (PwC) data that suggest approximately 70% of South Africans experience economic crime at some point or another.

In a recent CNBC Africa report, Nortons Incorporated senior partner Anthony Norton said, “[There is] a burgeoning increase in white collar crime, and particularly the sophistication, a lot of internal white collar crime by senior management of companies. Those are really the trends that we’ve been seeing.”

According to Dr Janette Minnaar-van Veijeren from ProEthics, white-collar crime may loosely be defined as non-violent economic crimes, which are carefully planned and of which fraud is a central part. She says most white-collar crimes involve a complex fraudulent scheme, meant to confuse investigators. There is often no clear victim, and it may not be obvious who the real perpetrators of the crime were, because criminals collude to commit these crimes, she explains. She also points out that many white-collar crimes continue for years without being detected, and millions of rand are often stolen in this way.


Minnaar- van Veijeren says white-collar crime research by the Certified Fraud Examiners in the United States of America and PricewaterhouseCoopers shows that large corporations lose an average of 6 percent of their annual turnover to fraud (a form of white-collar crime). “The victims of white-collar crime may be the employees of a company, the general public or society in general. Although a calculation can be made to estimate the financial losses suffered by the victims, it is more difficult to arrive at a financial estimate of the broader damage caused when white-collar crime flourishes in a country. Because of the ‘hidden’ nature of white-collar crimes, these schemes may go unnoticed for years, making the recovery of stolen monies almost impossible,” she says.

According to Minaar-van Veijeren, it is well known that fraud and white-collar crime by company executives have resulted in the failure of large companies. She says such crimes and failures, in their turn, result in jobs being lost, families being adversely affected and a company’s trust relationship with its stakeholders and investors being harmed.

“Because of the (usually) non-violent nature of white-collar crime, these crimes are often more tolerated and “accepted” than violent crimes. There seems to be less of a social outcry when a white-collar crime is detected. It is only when people understand the pervasive and destructive nature of white-collar crime, or when they suffer real losses as a result of white-collar crime, that action is taken. Unfortunately, many companies still deny that white-collar crime poses a real threat to their existence. Consequently, there is still a high level of resistance against fraud-prevention training in many companies, for fear of embarrassment or ignorance.

As Minnaar- van Veijeren points out, the punishment of white-collar crimes has come full circle. “In the 1980s, white-collar criminals were sent to prison. After some years, it became apparent that the prospect of imprisonment did not deter white-collar criminals, and the concept of asset forfeiture was conceived in the United States of America. The assets of suspected white-collar criminals were seized, bank accounts were frozen and, after conviction of the criminals, the assets were forfeited to the State. The burden of proof shifted to the accused, who had to prove where he/she had obtained the assets.

The modern approach

“A presumption was created that all assets of the accused had been acquired through the proceeds of crime and were therefore tainted. Asset forfeiture initially seemed to work very well and still does so, provided that the criminal does not hide the assets so that they escape detection,” she says. The modern approach is to use multiple forms of punishment for white-collar criminals, she says. She mentions that assets are seized and forfeited upon conviction, combined with large fines and house arrests or, in serious instances, a long prison term,” she says.

In an exclusive with Opportunity, EthicsSA CEO Deon Rossouw proposes three actions to strengthen programmes for reducing fraud in both the public and private sectors:

  1. Provide training on corporate anti-fraud policies that includes an ethical dimension. It’s a shocking fact that only around 30 percent of C-suite executives and 50 percent of employees attend anti-fraud training. This provides one clue as to why simply having anti-fraud policies is not enough. Corporate leaders must set the tone by doing the training and insisting those who report to them do it too. Furthermore it is important that the training should not be merely technical, but it should be embedded in a proper ethical framework.
  2. Ensure ongoing communication about fraud and honesty, again within an ethical framework. Building an ethical culture will not be achieved in a day, and must be considered to be a journey. A well-crafted communications strategy can help keep the issues top of mind and reinforce the fact that compliance with corporate policies is not just a business need but an ethical obligation shared by all employees of a company.
  3. Recognise and reward ethical behaviour. Companies and other organisations recognise financial performance, and thus they have successfully created a culture that promotes behaviour that improves profitability. Recognition and reward systems must be adapted to encourage ethical behaviour.

The power of ethics

Rossouw says these three actions are relatively simple to put into effect but can be extremely effective because they harness the power of ethics to change the way that people behave—even when nobody is looking.

“Building an ethical culture is critically important because it helps us to go beyond detecting fraud to preventing it from happening in the first place. For fraud to happen, there needs to be opportunity, motivation and then the capability to rationalise the wrongdoing. Ethics helps to stop fraud from occurring by undercutting the motivation to commit it, as well as the individual’s ability to rationalise the wrong that they have done,” he says.

One might pose the question that if white collar crime in South Africa is increasing, does this mean that business owners have to treat employees as potential criminals? According to Rossouw, only when a deep ethical culture has been created, and is self-sustaining, will employees do what is right irrespective of whether they are likely to be caught, or not. He says if ethical behaviour is imposed from above and compliance is solely based on fear, fraud will continue to grow because the factors that motivate it, a toxic mixture of greed and need, remain in place.

“It is therefore imperative that companies do not treat all their staff as crooks and criminals. Instead organisations should emphasise the positive standards and behaviour that they want all employees to adhere to. When they see employees behaving in an exemplary manner, they should give such employees public recognition, thereby reinforcing the kind of behaviour that they wish to see in the organisation. However, when an employee commits fraud (or any other unethical behaviour) decisive and visible action should be taken to prevent reoccurrence of the same behaviour,” he concludes.

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